You probably know that according to statistics, four-fifths of businesses established fail within the first year and then one-fifth of businesses that survive within the first year also go out of business within five years. This is really scary for prospective business owners, as only one out of a hundred businesses go beyond the tenth year.
But what exactly causes businesses to fail at such an alarming rate? What causes businesses that started with all the exhilaration later turn that euphoria into misery and depression? While there are a whole lot of causes of business failure, too much for an article to cover, we’ll be covering the most common ones and how you can escape it if your business is already experiencing any of the problems we’d be listing out in this article.
Let’s get started.
1. Growing too fast
You want to be the best in the world, but you don’t achieve it by forcing it to be. This is a major problem with small business owners as they sacrifice experience for “class.” The journey is as important. Don’t be, in a bid to “get there” that you begin spending on irrelevant things instead of setting realistic goals and then growing your business specifically based on the needs of your business at any given time.
2. Competition
Certainly, there are going to be a lot of businesses that are well beyond your current level that you may start to doubt whether you could actually get to the level they are. It’s that doubt that causes a lot of business failures as that always come with focusing on the competition rather than being uniquely you, being there for your customers, and then coming up with better ways to solve your customers’ problems. A word of warning, a lot of businesses out there are ready to prey on startups and steal their ideas. To prevent idea theft, try to patent, trademark and copyright your products or property.
3. Starting your business on the wrong reasons
The relevance of starting a business cannot be overemphasized on just skills but also understanding how to use it. Beyond that, there are grounds on which you should never start a business. You won’t work fewer hours but more, because small businesses demand critical attention. Well except you want to pay someone to do it for you, someone who may not even share the enthusiasm you have for the business. If you’re starting a business just because you don’t want a boss, don’t stress yourself as you’d do better for yourself if you were self-employed instead. Know the right reasons you want to start a business. Do you have a problem that deep down, you know you want to address? Do you have an intense passion and love for what you want to embark upon?
4. Failing to change with the times
The world of business is really dynamic that you have to know what works at any point in time and be ready to change your strategy if something better comes up. You have to be willing to be really flexible with your plans but when achieving this, never forget where you’re going as a business, that’s really important. Recognize when opportunities are knocking and then act swiftly.
5. Bad Debt
This is another reason why businesses fail at a staggering rate. Why “bad” debt? Does that mean we have “good” debt? Exactly! The idea of getting a loan is really scary, but it shouldn’t be if you understand when or why you should get a loan. Let’s assume you get a loan of N100,000 and are supposed to repay at a certain time with 20% interest on it. That means you’re paying back N120,000.
You see that N20,000 increment? That’s what a lot of people fear when they preach “Don’t get loans!!!” It is only a bad debt if you can’t make more than 20% (the interest rate) of the N100,000 you got.
Say, for example, you invested that amount into your business and was able to gain a 90% profit on your investment, that is N90,000. Less the N20,000 interest you are meant to repay, you have a total profit of N70,000.
You should never take out a loan if you have no intentions of making more than you’re going to give back as interest on that loan you took.
Most businesses fail not because they didn’t work hard enough, but there is also something else you need to know. It has been found that great businesses that have survived had philosophies that guided their steps and decisions even if it didn’t make sense to everyone else. Those philosophies may have stemmed out of experience or intuition that was driven by a dream or vision for that business. Even just one philosophy is enough to change how you operate your business and guide I through difficult times. What is your business philosophy?
“When values are clear, decisions are easy.” – Walt Disney